ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 11-4922SR

DATE: 2014/07/21

BETWEEN:

JONES FEED MILLS LTD.
Plaintiff/Defendant by Counterclaim

– and –

MAXWELL RAIVIO
Defendant/Plaintiff by Counterclaim

Wayne F. McCormick, for the Plaintiff Jones Feed Mills Ltd.

James D. Bromily, for the Defendant by Counterclaim Jones Feed Mills Ltd.

Donald R. Good, for the Defendant/Plaintiff by Counterclaim

HEARD: June 11, 12, 13, 16 and 18, 2014

THE HONOURABLE JUSTICE D.A. BROAD

REASONS for judgment

Background and Nature of the Action and Counterclaim

[1] The Plaintiff (“Jones Feed”) is a manufacturer and supplier of commercial animal feed. The Defendant (“Mr. Raivio”) operates a commercial rabbit farm. Jones Feed commenced this proceeding by Statement of Claim seeking payment of the sum of $26,097.08 representing unpaid invoices for the supply of rabbit feed to Mr. Raivio for the period August 8, 2005 to March 22, 2006.

[2] Mr. Raivio defended the action and counterclaimed for damages on the basis of negligence and breach of contract, alleging that some or all of the feed supplied by Jones Feeds was contaminated with vomitoxin, also known as deoxynivalenol or “DON”, causing illness and a spike in mortality among his rabbit herd. Mr. Raivio claimed economic loss in the sum of $70,000.00. Although Mr. Raivio claimed damages for emotional stress and mental anguish in the sum of $15,000.00, this claim was not pursued at trial.

[3] The parties entered into an Agreed Statement of Facts which had the effect of disposing of the main action. The parties agreed, in the Agreed Statement of Facts, that Jones Feed supplied rabbit feed to Mr. Raivio and invoiced him for the agreed cost of the feed according to the invoices set forth in the Statement of Claim and that Mr. Raivio failed to pay the said invoices. Each invoice contained a provision that a service charge would be charged on the overdue invoices at the rate of 1.5% per month compounded monthly for an annual rate of 19.6%.

[4] Mr. McCormick, who represented Jones Feed in relation to the main action, withdrew following the introduction of the Agreed Statement of Facts into evidence, and the trial continued with respect to the counterclaim, with Mr. Bromily acting for Jones Feed in defence of the counterclaim.

Facts

[5] The facts in relation to the counterclaim are not largely in dispute and may be summarized as follows:

(a) Mr. Raivio has raised rabbits for 40 to 45 years and has done so on a commercial scale, as a sole proprietor, since 1987;

(b) since 1987 Mr. Raivio gradually increased his rabbit herd such that by 1998 he had approximately 600 does (female breeding rabbits);

(c) by 2004 Mr. Raivio had approximately 1100 does, a level that has remained relatively constant since that time. He was described in evidence as being the largest commercial rabbit producer in Canada and the United States;

(d) revenue from Mr. Raivio’s operation was derived from the sale of fryers (10-12 week old rabbits), heavies (former female breeding rabbits) and breeding stock for meat, as well as small rabbits (2 lbs.) to laboratories for scientific purposes;

(e) Mr. Raivio’s operation experienced relatively level mortality rates from 1995 to 2001, expressed as the number of deaths between birth and the sale of rabbits, as a percentage of total rabbits born, at a low of 20.59% in 2000 to a high of 23.28% in 2001, or an average of 22.47%;

(f) commencing in 2002 the operation began experiencing higher mortality rates being 40.73% in 2002, 42.68% in 2003, 44.71% in 2004, 52.34% in 2005 and 61.82% in 2006;

(g) in 2007 the mortality rate had decreased to 31.27%, by 2008 it had been further reduced to a pre-2002 rate of 23.53% and in 2009 and 2010 it was 21.67% and 21.12% respectively;

(h) average monthly mortality remained relatively constant at approximately 943 deaths between January 2004 and August 2005;

(i) the operation experienced a spike in mortality in September 2005 with 4,567 deaths, following which mortality continued to decrease to 900 deaths in February 2006;

(j) average monthly mortality approximated 2,256 deaths from March to December, 2006 and another spike was experienced in December 2006 with 3,615 deaths;

(k) on May 6, 2005 Mr. Raivio began purchasing feed from Jones Feed, consisting initially of Jones Feed’s standard rabbit feed mixes, one for each of the does and the fryers respectively. The parties did not enter into a written agreement in respect of the supply of standard rabbit feed mixes;

(l) commencing on August 28, 2005 Jones Feed began supplying to Mr. Raivio with custom formula feed mixes manufactured according to specifications developed and provided by Mr. Raivio. All of the ingredients comprising the custom formula feed came from Jones Feed's inventory, with the exception of a pre-mix which was sourced by Mr. Raivio from another supplier, the formulation of which was proprietary to him and was not known to Jones Feed. Prior to the switch to the custom formula feed, Jones Feed and Mr. Raivio entered into a “Customer Formula Feed Agreement”, by which Jones Feed agreed to maintain a copy of the formula for at least six months from the last day of manufacture and to keep all custom formula details confidential and not to retail the feeds to anyone other than Mr. Raivio. The Customer Formula Feed Agreement was silent with respect to quality or with respect to acceptable levels of mycotoxins or other contaminants, and contained no express warranty of fitness or merchantability;

(m) all of the feed purchased by Mr. Raivio from Jones Feed was delivered in bulk in loosely packed trucks. Upon delivery, the feed was blown up into two metal storage bins on the farm by means of an air blower. In Mr. Raivio’s operation, the feed was transported from the storage bins to the barns by means of an auger, and was hand scooped and delivered from a central area to the individual feeders at the rabbit cages;

(n) prior to May 6, 2005 Mr. Raivio obtained his supply of rabbit feed from other suppliers including Mount Forest Elevators (MFE), Master Feeds, Floradale, Kenilworth and Purina. During the period January to April 2005 MFE was the supplier of almost all of the feed utilized in the operation;

(o) pursuant to toxin testing performed on feed supplied by MFE in May, 2005, vomitoxin levels had been found between 1.48 ppm (parts per million) and 1.54 ppm (using samples collected by MFE) and 1.77 ppm (using a sample collected by Mr. Raivio);

(p) in his dealings with Jones Feed at the time of his switch from MFE to Jones Feed as his main feed supplier in May, 2005, Mr. Raivio made it known to Jones Feed that he was a commercial rabbit producer and, although he testified that he told the Jones Feed representative about the vomitoxin readings from the MFE feed, there were no discussions between the parties nor was there any agreement reached between them respecting maximum levels of the mycotoxins or other contaminant in the feed to be supplied by Jones Feed;

(q) Mr. Raivio described the mortality rates during the period that Jones Feed was supplying Mr. Raivio with the standard mix feeds, being from May to August, 2005, as acceptable, comprising an average of 21.7 dead rabbits per day. Mr. Raivio did not arrange for any tests to be conducted with respect to toxins in the feed supplied by Jones Feed during this period as he had no reason to believe there were any problems with toxin levels in the feed;

(r) on September 5, 2005 270-300 dead rabbits were found in their cages in the fryer barn. High levels of mortality in the herd continued through September, with a total of 4,567 deaths. Mortality levels continued to decrease until Mr. Raivio discontinued purchasing from Jones Feed in November 2005, with approximately 3,100 rabbit deaths in October and 2,300 in November;

(s) shortly after discovery of the high number of dead rabbits on September 5, 2005, Mr. Raivio consulted his veterinarian Dr. Terry Fisk for advice in diagnosing the cause. Dr. Fisk noted that many of the rabbits had fecal staining, demonstrating diarrhea. Dr. Fisk recommended that Mr. Raivio take samples of the water and feed administered to the rabbits, and that the feed pellets be removed and the rabbits be fed grass hay in order to attempt to get the diarrhea problem under control. Dr. Fisk recommended this as the digestive systems of the rabbits may be sensitive to certain grains or high energy feeds;

(t) Dr. Fisk also recommended that Mr. Raivio take a number of rabbits to the lab at the University of Guelph for examination. Upon delivery of three live and two dead rabbits to the lab on September 6, 2005, Mr. Raivio reported that a large problem had occurred on the lower level of one barn and that the upper level of the same barn was minimally affected. The lab report noted that the same feed was used throughout the barn and in other barns in the operation which were unaffected. Additional rabbits were delivered to the lab by Mr. Raivio on September 9, 2005 for post-mortem examination.

(u) the post-mortem examinations resulted in a diagnosis of “mucoid enteropathy” with no cause being provided. The final report of the pathologist indicated that the bacteria in the intestines of the rabbits were most likely E. coli, which might be part of the enteric dysfunction, but there was not one organism, dietary or management factor alone that was responsible for the scouring (diarrhea) problems;

(v) following his discovery of the high number of dead rabbits, Mr. Raivio contacted the manager of the nutrition department of Jones Feed, Michael Edwards, who immediately offered to come to the farm and to take samples, however Mr. Raivio declined this offer, advising that he was looking after obtaining samples himself;

(w) Mr. Edwards arranged to retrieve the samples retained from the most recent shipment to the Raivio farm, being the first shipment of the custom feed mix. As part of its ongoing food safety program, Jones Feed retained samples of all shipments, obtained by continuously taking samples as the truck was being filled and blending the samples into one sample;

(x) on September 19, 2005 Jones Feed arranged to have the retainer sample for the most recent shipment sent to Agri-Food Laboratories to undergo testing for vomitoxin. The test disclosed a level of 0.37 ppm of vomitoxin. Jones Feed also arranged for analysis of the percentages of the various ingredients, which disclosed that the feed was mixed according to specification (without consideration of the proprietary premix supplied by Mr. Raivio of which Jones Feed had no knowledge);

(y) on October 5, 2005 Jones Feed sent retainer samples obtained from a subsequent shipment of feed to the Raivio farm for a toxin test which disclosed a level of less than 0.20 ppm of vomitoxin (that is an undetectable amount), and for batch analysis which disclosed that the mixture had been prepared according to specification;

(z) on December 12, 2005 Jones Feed submitted a further retainer sample from a shipment to the Raivio farm for toxin testing which disclosed a vomitoxin level of 0.49 ppm;

(aa) Jones Feed, as part of its ongoing quality control program, routinely sent samples of incoming grain product, which was mixed in its manufacturing process to produce its feed products, to Agri-Food Laboratories for analysis. Samples of wheat submitted August 22, 2005 contained less than 0.220 ppm vomitoxin, corn less than 0.20 ppm, soya meal less than 0.20 ppm, mixed grain 1.57 ppm, shorts 0.58 ppm, and samples of soft wheat taken August 30, 2005 showed vomitoxin levels of less than 0.20 ppm from one bin and 2.46 ppm from another bin. The evidence indicated that only small quantities of mixed grain were in the feed supplied to Mr. Raivio and it was well diluted in the mixture;

(bb) Mr. Raivio collected one combined sample of feed from the feeders of a number of the dead rabbits and submitted the sample to Agri-Food Laboratories. The evidence was equivocal on when the sample was taken. Mr. Raivio testified that the sample had been collected on September 6, 2005. The sample was analyzed for vomitoxin in early November, 2005 and showed a vomitoxin level of 1.97 ppm;

(cc) it was acknowledged by counsel for Mr. Raivio in final submissions that, as of 2005, there was no published or accepted industry standard for maximum levels of mycotoxins in rabbit feed in Canada or the United States;

Issues

[6] The issues for determination in the counterclaim are as follows:

(i) were the high levels of mortality in Mr. Raivio’s rabbit herd for the period commencing September 5, 2005 and ending in November, 2005 caused by the feed supplied by Jones Feed?

(ii) did Jones Feed breach its contract with Mr. Raivio by supplying contaminated feed, or was it negligent in doing so?

(iii) what damages, if any, did Mr. Raivio suffer as a result of any breach of contract or negligence on the part of Jones Feed?

(Sections of the judgment continue exactly as in the source through paragraphs [7]–[68], concluding with the disposition and costs directions.)

D.A. Broad, J.

Released: July 21, 2014

COURT FILE NO.: 11-4922SR
DATE: 2014/07/21

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

JONES FEED MILLS LTD.
Plaintiff/Defendant by Counterclaim

– and –

MAXWELL RAIVIO
Defendant/Plaintiff by Counterclaim

REASONS FOR JUDGMENT

D. A. Broad, J.

Released: July 21, 2014