COURT FILE NO.: CV-09-392717

DATE: 20140724

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: LEDA FURNITURE LTD., Plaintiff/Responding Party

AND:

AKZO NOBEL WOOD COATINGS LTD., Defendant/Moving Party

BEFORE: Mr. Justice Stephen Firestone

COUNSEL:
David A. Weisman, for the Plaintiff/Responding Party

Randy C. Sutton, for the Defendant/Moving Party

HEARD: April 9, 2014

ENDORSEMENT

[1] The defendant, Akzo Nobel Wood Coatings (“Akzo”), brings this motion for the following orders:

(a) Leave to amend its statement of defence and deeming such amended statement of defence served on the plaintiff, Leda Furniture Ltd. (“Leda”), and

(b) Summary judgment dismissing all or part of Leda’s statement of claim because it is statute-barred.

[2] The moving party Akzo relies on rules 1.04, 2.01, 20.01(3), 20.02(2), 20.04(2.1), 26.01, 26.04, and 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (“the Rules”) and sections 4 and 5 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B (“the Act”).

THE PARTIES

[3] Leda is in the business of manufacturing and selling furniture.

[4] Akzo is in the business of manufacturing wood coatings including stains, lacquers, catalyzes urethanes, and polyesters.

BACKGROUND

[5] In or around 2006, Leda alleges that it met with a representative of Akzo, and based on the representations made, Leda began purchasing wood coatings from Akzo.

[6] Leda’s director of operations, Winston King (“King”), deposes in his affidavit sworn November 4, 2013 that in or around June 2006, he started to notice evidence of “checking” (spider web-like fine cracks that appears in the wood coating after application and drying) on some of the finished furniture produced by Leda, and he complained to Akzo.

[7] In response to the complaint, Akzo’s representatives attended Leda’s plant and advised that the checking was not a result of any problems with the wood coatings, but rather the checking resulted from the way Leda’s employees were applying the coatings.

[8] King further deposes that Akzo agreed to investigate and make adjustments in its wood coating to see if that would get rid of the checking.

[9] The checking problems continued and Leda was repeatedly reassured by Akzo that the problem did not arise from any deficiency in its wood coatings and that the problem was a result of the way Leda employees were applying the wood coatings.

[10] Up to the end of 2007 while the checking was occurring, King deposes that Leda was willing to work with Akzo to resolve the problem, whether it was due to the application process used by Leda or the quality of wood coatings supplied by Akzo.

[11] King deposes that Akzo was continually adjusting the ingredients in its coatings and advising him that these adjustments would solve the checking problem.

[12] In late 2007 and early 2008, Leda subcontracted out some of its work to another furniture manufacturer. That other manufacturer used the same wood coatings supplied by Akzo and experienced the same checking problems.

[13] On February 28, 2008, King met with representatives of Akzo. Following the meeting a letter was sent by King that day indicating that it is important to “determine and resolve the checking quality deficiency”.

[14] It is Leda’s position that in February 2008 it was no longer satisfied with the explanations of Akzo that the checking arose from the improper application of the wood coatings by Leda employees. However, the relationship between the parties continued.

[15] Leda issued its statement of claim for damages on December 4, 2009.

[16] Akzo delivered its statement of defence and counterclaim on or about January 18, 2010. The counterclaim is for payment of overdue accounts in the sum of $19,684.78.

[17] Leda’s reply and defence to counterclaim was delivered on or about April 22, 2010.

[18] On discovery King confirmed that the alleged defects relate to nine wood coatings all purchased at different times as follows:

(a) Plastofix 488-625. First purchased March 31, 2006.

(b) Danspeed 482-325. First purchased June 8, 2006.

(c) Plastofix 421-5536. First purchased July 17, 2006.

(d) Plastofix 488-690. First purchased July 28, 2006.

(e) Plastofix 421-5591. First purchased December 13, 2006.

(f) Plastofix 488-650. First purchased August 3, 2007.

(g) Danspeed Elite 424-4490. First purchased October 23, 2007.

(h) Danspeed 424-4438. First purchased March 18, 2008.

(i) Danspeed 424-4492(E05-0080). First purchased May 15, 2008.

ANALYSIS

Should Akzo be granted leave to amend its statement of defence and counter claim?

[19] Akzo seeks leave to file a fresh as amended statement of defence to plead the limitation period claim and reflect particularities of Leda’s claim that it obtained through examinations for discovery. Akzo did not plead in their statement of defence and counterclaim, dated January 18, 2010, that this action, or any part of it, is statute-barred.

[20] Rule 26.01 directs that on motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that cannot be compensated for by costs or an adjournment.

[21] An amendment of this nature is to be allowed unless it is plain and obvious or beyond a reasonable doubt that the claim cannot succeed: see Transamerica Occidental Life Insurance Co. v. Toronto-Dominion Bank, [1997] O.J. No. 1 (Gen. Div.), at paras. 2-3, rev’d in part on other grounds (1999), 1999 3716 (ON CA), 44 O.R. (3d) 97 (C.A.). This principle is, in my view, equally applicable to a statement of defence.

[22] In this case there is no prejudice that cannot be compensated for by allowing the plaintiff the right of further discovery on any matters arising as a result of the amended defence.

[23] I am satisfied on the record before me that it is not plain and obvious that such proposed amendments would not succeed. The amendments raise a triable issue regarding the limitation period in this case.

[24] Akzo is, therefore, granted leave to deliver an amended statement of defence and counterclaim on this basis. The amended pleading is to be served on Leda in accordance with the Rules.

[25] Leda shall have the right to deliver a reply in accordance with the Rules following delivery of the amended statement of defence and counterclaim as well as the right of further discovery on any new issues raised in the amended defence.

Is Leda’s claim statute-barred because the action was commenced more than two years after it discovered its claim?

[26] Under s. 4 of the Act, a proceeding cannot be commenced after the second anniversary of the day on which the claim was discovered.

[27] Section 5(1) directs that a claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

[28] Section 5(2) creates a presumption. A person with a claim shall be presumed to have known of the matters referred to in clause (1)(a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

[29] The thrust of Akzo’s argument is that on discovery Leda admitted that before December 4, 2007, it used and discovered alleged defects with seven of the nine wood coatings. Akzo argues that problems existed throughout 2006 and 2007.

[30] In Kowal v. Shyiak, 2012 ONCA 512, 13 C.L.R. (4th) 7, the Ontario Court of Appeal held, at para. 18, that in dealing with s. 5(1)(a), “[c]ertainty of a defendant’s responsibility for the act or omission that caused or contributed to the loss is not a requirement. It is enough to have prima facie grounds to infer that the acts or omissions were caused by the party or parties identified” (emphasis added, citations omitted).

[31] In Tender Choice Foods Inc. v. Versacold Logistics Canada Inc., 2013 ONSC 80, aff’d 2013 ONCA 474, Justice Perell confirmed the following principle of discoverability, at para. 59:

Discovery of a claim does not depend upon the plaintiff knowing that his or her claim is likely to succeed; the limitation period runs from when the prospective plaintiff has or ought to have had, knowledge of a potential claim, and the later discovery of facts which change a borderline claim into a viable one does not postpone the discovery of the claim. [Emphasis added, citations omitted].

[32] In C.H. Clement v. Seguin Racine, 2013 ONSC 7237, the court stated as follows, at para. 35:

The fact-finding exercise associated with the application of the discoverability principle is highly contextual. It requires a determination of when the plaintiff had “sufficient material facts” to establish “prima facie grounds” to infer that the acts or omissions complained of were caused by the party or parties identified.

[33] In this case, in or around April 2006 evidence of checking was first noticed on some of Leda’s furniture after applying one of the nine Akzo wood coatings purchased. Eight other wood coating products were later purchased over time from Akzo as indicated above, which led to similar problems. It is unclear from the limited record before me if the chemical composition of each product is the same or different. This issue of fact is important to the discoverability analysis.

[34] On discovery King deposed that he first attributed the checking problem to Akzo in June 2006. However, Akzo responded to Leda’s initial complaint by saying that the checking was not a result of any problems with the wood coatings and therefore must be caused by the way Leda employees applied the product. Leda and Akzo then continued their business relationship for about three years.

[35] It was logical for Leda to accept this explanation since at that point in time the checking was occurring with many different wood coatings purchased by Leda, not with just one product purchased by Leda in 2006. Leda initially accepted and relied upon Akzo’s assurances.

[36] These subsequent communications and assurances are an important factor in the application of the discovery principle.

[37] In my view, the point in time when Leda first noticed or discovered the checking (in April 2006 notwithstanding King’s admission at discovery that he attributed the checking problem to Akzo’s product in June 2006) does not equate to discovery “that the injury, loss or damage was caused by or contributed to by an act or omission” of Akzo, especially in light of the communications and assurances that followed after Leda’s initial complaint in 2006.

[38] King’s view in 2006 (as confirmed on discovery) that he attributed checking to Akzo must be considered in light of the subsequent representations and assurances made by Akzo.

[39] Given the nine products involved in this case it is not clear on the factual record whether Leda discovered a claim against Akzo before December 4, 2007. Specifically, while Leda knew that loss or damage had occurred before that date, I am not satisfied that Leda knew that such loss or damage (checking) was caused or contributed to by an act or omission of Akzo.

[40] As stated in Lawless v. Anderson, 2011 ONCA 102, 81 C.C.L.T. (3d) 220, at paras. 23 and 28, “[t]he question to be posed is whether the prospective plaintiff knows enough facts on which to base an allegation of negligence against the defendant. … what a prospective plaintiff must know are the material facts necessary to make a claim, whatever form they come in.”

[41] The Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7, sets forth the roadmap/approach to be taken on a motion for summary judgment, at para. 66:

On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

[42] The discoverability issue is, in my view, a genuine issue requiring a trial. This is because the discoverability claim relates to not one but nine different products purchased at different times and involves alleged assurances and representations made by Akzo. The evidence before me does not make it clear when Leda discovered that the checking problem was caused by an act or omission of Akzo.

[43] Having found a genuine issue requiring trial, I am to determine whether the need for such a trial can be avoided by using the powers under Rules 20.04(2.1) and (2.2). I may, at my discretion, employ those powers provided such use is not against the interest(s) of justice.

[44] The Ontario Court of Appeal confirms in Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450, at para. 33, that the principle in Hryniak is that the motions judge must “assess the advisability of the summary judgment process in the context of the litigation as a whole.” In Hryniak the Supreme Court specifically states, at para. 60, that “the ‘interest of justice’ inquiry goes further and also considers the consequences of the [summary judgment] motion in the context of the litigation as a whole”.

[45] In my view, the interests of justice require that the limitation period issue pleaded for the first time, as a result of the order made on this motion, is to be determined at trial on a full evidentiary record, rather than by employing the powers under Rule 20.04(2.1) and (2.2).

[46] This case is proceeding to trial on the counterclaim irrespective of the determination made on this motion. In addition, as a result of my order to grant leave to amend the defence, the plaintiff has been granted the right of further discovery.

[47] Given the unique circumstances of this case, which concerns not one, but nine different products purchased at different times and the communications surrounding each one of them, the interests of justice would be better served if the discoverability issue is determined on a full evidentiary record at a trial.

[48] Proceeding in this fashion will better serve the goals of timeliness, affordability, and proportionality since the counterclaim is going to trial in any event. Therefore, the motion for summary judgment is dismissed.

[49] The Supreme Court of Canada directs in Hryniak, at para. 78, that when a motion judge dismisses a summary judgment motion, he or she should remain seized of the matter in the absence of compelling reasons to the contrary.

[50] I conclude that the purpose behind the Supreme Court’s direction would not be well-served in the circumstances of this case. I have made no findings about the evidence on this motion “beyond saying that there is a genuine issue for trial about whether the action is statute-barred”: see Huang v. Mai, 2014 ONSC 1156, 119 O.R. (3d) 117, at para. 52. There also appears to be no need for case management. I, therefore, exercise my discretion not to remain seized of this case.

Disposition

[51] For the reasons set forth above, I order as follows:

1. Akzo is granted leave to amend its statement of defence and counterclaim in the form attached as Schedule “A” to its Notice of Motion.

2. The amended statement of defence and counterclaim is to be served on Leda in accordance with the Rules.

3. Leda shall have the right of further discovery on any new issues raised in the amended statement of defence and counterclaim.

4. The motion for summary judgement is dismissed.

[52] If the parties cannot agree on costs I may be contacted in order to set a timetable for the delivery of cost submissions.

Firestone J.

Date: July 24, 2014